When Wendo Aszed, the founder of a health nonprofit in rural Kenya, is asked about her frustrations with donors, it doesn’t take long before she brings up a hot-button issue in philanthropy: restrictions on how to use donations.
The “pain point” for her is when funders won’t allow contributions earmarked for one project to be used on related emerging needs. One donor, she notes, funded family planning services — like birth control — but then objected to the money being used for HIV testing on the same women. And some, the 43-year-old added, didn’t want contributions they made prior to the COVID-19 pandemic to help implement virus safety measures at her organization, Dandelion Africa.
“They would prefer the organization closes, even if the funds were for essential services, than use their funds for prevention,” said Aszed, adding that some restricted grants even prohibit buying masks for a project. “We deserve unrestricted grants. We’ve been having these conversations back and forth with some funders who give us restricted funding. Some have gone well, and some have not gone so well.”
Unrestricted funding allows organizations to use donations on what they want. It makes an organization’s infrastructure more durable by funding overhead costs. Proponents say it also corrects donor blindspots in areas like racial equity funding, breeds trust and provides organizations flexibility to respond to shifting needs.
While Aszed’s organization gets a few of these contributions, most of its funding is restricted — earmarked for a specific project by the donor. The debate over these funding models has been around for many years. But nothing has been more galvanizing in this conversation than the pandemic, and to some extent, the racial justice protests following the police killing of George Floyd.
Since last March, about 800 donors — both in the U.S. and abroad — have signed a pledge, spearheaded by the Ford Foundation, that called on them to provide the organizations they fund more flexibility in their pandemic response. Soon, donors committed to a list of new steps, including loosening restrictions on current gifts and making new donations as unrestricted as possible. But, experts say it’s unclear if these practices, popular among grantees, will continue.
For its part, the Ford Foundation, which gives the majority of its contributions as unrestricted support, is trying to get it to stay. It announced Wednesday it will launch a second edition of its BUILD program — a multi-year, $1 billion initiative aiming to provide unrestricted funding to 300 organizations worldwide. So far, the foundation’s six-year program has given more than $950 million to social justice organizations; with new contributions slated to be awarded beginning next January.
“We very much hope other funders who signed the pledge continue in this direction,” said Hilary Pennington, the foundation’s executive vice president for programs, adding, “philanthropy needs all the encouragement and pressure it can possibly get in that regard.”
Though unrestricted donations, especially ones that happen over multiple years, are the holy grail of funding for grassroots organizations, it’s often hard to attain because donors — foundations, corporations or philanthropists — tend to tie their giving to projects.
“A lot of the restrictions were a way to disrupt the business of giving,” said Bradford Smith, the president of the philanthropy research organization Candid. “It was to make organizations much more focused on outcomes and impact.”
Donors also restrict their giving out of concern the funds will be used to pay salaries or other costs and “keep business as usual,” Smith added. “If you talk to most donors about why they’re giving, they’ll say ‘I want to make a difference in the world.’ And I think, especially with some of the newer wealth that started to come into philanthropy from Silicon Valley, billionaires and other people that have made their money in technology, they kind of brought almost a venture capital mindset where you were going to have very clear objectives, very measurable indicators, in order to be able to justify and communicate and measure the impact.”
But choosing between unrestricted donations and the ability to measure the impact of a donation “is a false dichotomy,” Pennington says.
“And the more we can do to move away from it, the better,” she added. “There are always times when giving project support makes sense. But it’s absolutely possible to measure the impact of these kinds of grants. Every organization has outcomes they’re trying to accomplish. And the foundations that invest in them have outcomes they’re trying to accomplish.”
As of now, early indicators show it’s uncertain whether the large shift toward unrestricted philanthropic giving will continue.
A Center for Effective Philanthropy report released in December surveyed nearly 240 foundations, of whom 170 signed the pledge to reduce restrictions on their giving. It found 92% of respondents had loosened or eliminated restrictions on current contributions, 80% were making new donations as unrestricted as possible and 90% were reducing what they ask of grantees, like reporting requirements.
The report said many indicated plans to continue these changes, but to a lesser degree than during their pandemic response. “These shifts in practice helped nonprofits cope with massive demand for their services and a need to adapt to a rapidly changing context,” said Phil Buchanan, the group’s president. “The question now is whether these changes were a blip or will be sustained into the future, and it’s frankly too soon to tell.”
Another phenomenon that could signal a shift are the sizable donations of billionaire philanthropist and author MacKenzie Scott, the recently remarried ex-wife of Amazon founder Jeff Bezos. She gave nearly $6 billion in unrestricted contributions last year to hundreds of groups for COVID-19 relief, racial equity and other areas.
Scott’s donations represented most of the unrestricted contributions from the $20.2 billion that was awarded globally for COVID-19 last year, according to a March study by Candid and the Center for Disaster Philanthropy. The report found 39% of those donations were unrestricted. Excluding Scott’s contributions, that number plummets to 9% — just a small bump from 3% in the first half of the year.
“She essentially made a bunch of large unrestricted grants to organizations that she and her advisors had deeply researched,” said Smith. “What you may see is a more front-loaded approach by foundations where they do a lot of research on the organization and the grant they make is much less encumbered by restrictions.”
Whether that happens remains to be seen. Proponents, like Nina Blackwell, the executive director of Firelight Foundation, a U.S.-based charity that raises money for organizations in Africa, hope the changes continue.
“Today in philanthropy, we retain all of the power,” Blackwell said. “We decide what the problem is for others, what others should do about that problem, how the activities should take place, and how change should be judged and measured. And we simply cannot continue to think that way if we really wish to be equitable, just and lasting in our philanthropy.”
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